On February 15, 2012, while speaking at a Goldman Sachs conference hosted in San Francisco, Jim McCarthy, the global head of products at Visa took aim at PayPal’s new mobile payment system, which the online payment provider is currently testing at a limited number of Home Depot Inc. stores.
“I think there’s a real issue around security, said McCarthy, adding that it’s possible to gain access to the customer’s personal information when PayPal is used to make a purchase in the physical world. The comment, and the line of reasoning, show that traditional credit card companies are playing hardball in the realm of digital payments, and sensing real competition from technology companies like PayPal (whose parent company is EBay), as well as Google and Verizon Wireless.
Visa, for its part, is making a concerted push to see the EMV standard be more widely excepted in the United States, with reliance on integrated chip cards and contactless payments via smartphones. Consequently, a system like PayPal’s represents a threat, as many younger customers who are comfortable shopping and completing other transactions online are already quite comfortable with the service.
PayPal started testing out its purchase method in January. Instead of swiping a PayPal magnetic stripe debit card, the customer can complete the transaction by typing their mobile telephone number and a personal identification number or PIN into the merchant’s terminal. The numbers are, of course, linked to their PayPal account. Currently the system is being tested in 51 Home Depot stores and will be expanded to 2,000 more in March.
Although neither PayPal nor Home Depot was willing to comment, McCarthy said that if a skilled thief observed such a transaction, they could simply use the same numbers to spend money from the account on their own. McCarthy also pointed out that PayPal lacks the infrastructure to support volumes of mobile payments. “We’re now capable of doing 20,000 transactions a second in real time, said McCarthy, indicating that PayPal isn’t really “capable of doing what we’re doing at scale.”
Primarily, PayPal is a service to enable payment of goods and services from desktop and mobile websites. Typically customers fund their PayPal balance through their bank accounts, and can also link Visa, MasterCard, American Express, and Discover cards to their accounts. Analysts say about half of the transactions made via PayPal are funded in that manner, and the system is also intimately intertwined with Ebay to complete payments for auction purposes. Many users have PayPal issued debit cards, which can be used like any other magnetic stripe card in the “real world.
Visa, for its part, is prepping its V.me system for a roll out. This method of payment would allow customers on websites to enter a username and password to compete their card purchases instead of entering their card numbers, which can then leave them open to fraud and identity theft. Ultimately, V.me will be used at physical merchants via mobile phones and near-field-communication for contactless payments.
Obviously the need to deter fraud and to cater to customer convenience is driving the push for EMV acceptance in the U.S. via chip cards and smartphone use. Whether technology companies like PayPal can compete against credit card giants like Visa remains to be seen, however, and in this instance, it would seem PayPal’s test technology is lagging behind the global standard for secure payment services. The company is, however, on Visa’s “radar,” as competition in the payment field continues to heat up.